Chapter Four: Investment Strategy

The ACME Project: Growth Strategy

Investment Philosophy

Emphasizing long-term capital appreciation via a “value first” proposition, the Acme Growth Strategy (the Strategy) identifies companies with an attractive risk/reward proposition and multiple potential catalysts to realize growth. The philosophy incorporates an understanding of the cyclical nature of growth and value styles, accepting an allocation to the former, defined by the Strategy as “Reluctant Growth,” when growth holds an upper hand and value, therefore, is out of favor. The Strategy employs and evaluates a number of economic and market variables to determine an appropriate allocation to equities; it is anticipated that the Strategy will hold elevated levels of cash when said variables collectively indicate valuations are dear, and risks, high. Holdings will likely incorporate U.S. and international exposure, across market capitalizations, with a probable long-term bias toward the small-cap end of the spectrum. Cash is not targeted, but simply a residual of the investment process. Gold may be held, not as speculation, but as insurance against “unknown unknowns.”

The overriding philosophy places a priority on avoiding permanent impairment of capital. While benchmark agnostic in the short term, the Strategy aims to outperform its global equity benchmark, over complete market cycles, on a risk-adjusted basis. Investments are sought where the potential for significant gain is determined advantageous over the possibility and degree of loss.

The strategy will be available with or without attention paid to ESG (environmental, social, and governance) issues, as chosen by the client.

Investment Manager or Management Team

Richard “Rick” Sane brings over three decades of advisory experience to the Acme Growth Strategy. Degrees of higher learning include a B.B.A. from St. Bonaventure University and an M.B.A. from the University of Notre Dame.

Rick holds the following professional designations: Chartered Financial Analyst (CFA®), Chartered Alternative Investment Analyst (CAIA®), Certified Investment Management Analyst (CIMA®) and Certified Portfolio Manager (CPM®).

Investments & Wealth Institute (The Institute) is the owner of the certification marks “CIMA” and “Certified Investment Management Analyst.” Use of CIMA and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professionals.

Ideal Client

The ideal client understands and embraces:

1. Success is earned over time. No client should consider the Strategy without a conscious commitment of capital for at least five years or a full market cycle, whichever is longer.

2. Owning a portfolio of securities that will likely look quite different from the composition of any one index.

3. A significant degree of tracking error; that is, short-term return deviations from any standard benchmark.

4. A relatively concentrated portfolio, aka “less diversified,” is an important contributor to long-term success.

5. Cash and gold can be effective risk management tools and are part and parcel of a disciplined portfolio.

6. The Strategy represents a level of risk that should be scaled appropriately to each clients' risk tolerance and objectives.

Investment Process

Prior to investing in attractive candidates for long-term capital appreciation, the Acme Growth Strategy evaluates a number of macroeconomic and market variables to determine initial and ongoing allocations to equities, with cash, and potentially gold, as residual weightings. Once this allocation has been determined, consideration is applied to determine any meaningful and trending bias favoring growth or value. Should growth be determined to be in cyclical favor, up to 20% of the portfolio may hold exposure to traditional large cap growth, U.S. or global, via exchange traded funds (ETFs). The net result of this process will provide an allocation to equities of at least 60% of the portfolio value; cash (defined as investment grade instruments maturing in less than one year) up to a 30% weight; and gold (via ETF) up to a 10% weight.

Fundamental research attempts to identify companies with multiple possible catalysts for appreciation; it is not believed wise to lean heavily on just one possibly favorable outcome. Great ideas can come from many sources. The Strategy employs a wide variety of publications, competitive analysis, and industry research for inspiration. Given a foundational belief that better opportunities are likely found in companies less-researched, it should not be surprising to any client to see a portfolio that favors smaller publicly traded concerns.

Initial position sizes will generally fall in a range of 2% to 5% of investment capital; the higher figure reflecting a greater degree of conviction. The Strategy will likely hold 30 to 40 investments, but no less than 20 under any circumstance. Concentration in any one market sector is simply a consequence of identifying attractive individual companies, and not consciously targeted in advance.

While short-term benchmark agnostic, the Strategy will pursue quality performance, net of expenses, over full market cycles, of the global equity benchmark (MSCI ACWI Net Dividends).

An ESG filter will be applied to the Strategy at the discretion of the client.

Sell Discipline

An important principle of the Acme Growth Strategy is to identify companies with long-term, above average appreciation potential: in other words, “long runways.” There may be instances, therefore, when an opportunity is identified, and investment made, where the company is considered a small capitalization name. The Strategy will allow such positions to cross market-cap boundaries (small to mid to large) should it be the beneficiary of a rapidly growing and successful concern. In most circumstances a position will not be permitted to exceed a Strategy weight of 10%, with no more than two positions to exceed a 15% weight. At each respective limit, position sizes will be reduced by at least 2% from the 10% or 15% levels.

There is no specific time period utilized to determine if an underperforming position should be sold, but any declines exceeding 20% from the time of investment will merit reevaluation of the position. Any position experiencing a 30% loss will trigger immediate disposition. For accounts subject to taxation, the Strategy may incorporate harvesting of gains and/or losses as dictated by, and if in the best interest of, the client.

*Numerical figures provided are approximations.

Client Review

Strategy reviews will be supplied on a quarterly basis, electronically and/or in hard copy format. Such reviews will include performance, net of expenses, for that quarter, year to date, and from Strategy inception for each client. Performance will be measured against the global equity benchmark (MSCI ACWI Net Dividends). Reviews will always include the annual percentage fee structure agreed to in advance of Strategy implementation. At least two reviews each calendar year will be conducted via telephone or in person, whichever is deemed most convenient to the client.

Any opinions are those of the financial advisor and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. Investments mentioned may not be suitable for all investors. Utilizing an ESG investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.

The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2007 the MSCI ACWI consisted of 48 country indices comprising 23 developed and 25 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

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